One scenario, based on market harmonics, is outlined below. As some may know, I do like Elliot Wave Theory to a degree, although I do not want to know fifteen corrective patterns (or whatever it may be). I like the K.I.S.S. rule, and I try to aim for that (zen and all). Anyway, here is what I have (click to enlarge):
Please note this is a *possibility*, not something I *expect* per se.
Notice first the fibs. The two smaller fib ranges (in red) measure the same distance down. These are basically equal swings lower, an AB=CD harmonic. Next, notice the blue arrow lines. These are corrective moves against the trend, and the smaller arrows are roughly 50% of the larger arrows.
Lastly, there are the time extensions. In the funny pinkish color (coral to be exact), we have the time frame of the latest swing down. In general time retracements, corrective swings usually are 38.2%, 50%, 61.8%, or 100%. In this case, we can see the 38.2% (in black) lining up with the longer trendline. In between these trendlines, we have a potential falling wedge formation that could break out to the upside.
Regardless of what one may think of this chart, I am not particularly bearish here. I do think the market is extended, overbought, and due for a correction, but this has been the best rally we have seen in a while. Stocks are being snatched up like crazy in terms of price, but the volume is still light.
Tomorrow that wedge line is at about 790. If it goes there (and it very likely may do that before FOMC), then it could retrace any amount of this swing down to about 720. An equal move back up would break out of the wedge and hit that downtrend line at roughly that red arrow. Time will be tight for this, so it may not happen exactly in this manner, but, as I said, it is one *potential* scenario.
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